Good morning, and welcome to Wiley's First Quarter Fiscal 2022 Earnings Call. As a reminder, this conference is being recorded. At this time, I'd like to introduce Wiley's Vice President of Investor Relations, Mr. Brian Campbell. Please go ahead.

Hello, everyone, and thanks for joining us. With me are Brian Napack, President and Chief Executive Officer; and John Kritzmacher, Executive Vice President and Chief Financial Officer. A few reminders to start. The call is being recorded and may include forward-looking statements. You shouldn't rely on these statements as actual results may differ materially and are subject to factors discussed in our SEC filings. The company does not undertake any obligation to update or revise forward-looking statements to reflect subsequent events or circumstances. Also, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These measures do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to similar measures used by other companies, nor should they be viewed as alternatives to measures under GAAP. Unless otherwise noted, we will refer to non-GAAP metrics on the call, and variances are on a year-over-year basis and will exclude the impact of currency. After the call, a copy of this presentation and a playback of the webcast will be available on our Investor Relations web page. I'll now turn the call over to Wiley's President and CEO, Brian Napack.

Good morning, everyone, and welcome to our Q1 earnings call. Today, Wiley is reporting another quarter of solid revenue growth across all segments. We continue to take advantage of strong demand for scientific research and career-connected education throughout the global economy. Our performance underscores the tight alignment of our strategy to prevailing trends in the market and now more than ever, the critical importance of the work we do in powering discovery and learning worldwide. Simply stated, the more researchers and learners that Wiley can help to succeed, the greater the positive societal impact. One point of example of this is in our talent development business, where today, we are filling the critical technology skill gap while also actively targeting the acute lack of diversity in the technology space overall. In partnership with our clients, we target underrepresented populations and train them so that they can get great jobs and succeed in those high demand, high-paying jobs with leading corporations. As a result of this specific focus on diversity and equity, the representation of people of color in our tech career placement programs is far above the national average. From ensuring equity and hiring to making education more accessible through facilitating breakthrough climate research, Wiley continues to have an outsized impact on society. Across Wiley, we're making substantial progress on ESG and sustainability. Wiley's diversity disclosure in our annual report was cited as a top example by a leading corporate governance authority, we recently earned a silver rating from EcoVadis a leading sustainability ratings firm. This placed Wiley in the top 25% of all companies assessed. After achieving carbon neutrality in fiscal '20, we've kicked off our fiscal '21 carbon measurement initiative and have engaged a third party to guide us through the process of committing to and achieving science-based…

Thank you, Brian, and good morning, everyone. As Brian noted, the Wiley team continues to make good progress in executing our growth strategies and driving operational gains. Free cash flow for the quarter was 25% better than prior year, driven by higher cash earnings and favorable working capital timing, partly offset by higher annual incentive compensation payments for our fiscal year '21 performance. CapEx was $24 million for the quarter, modestly lower than prior year, and there were no acquisitions of note this quarter. We continue to be active on the M&A front as we seek our capabilities in key strategic areas of research and career-connected education. Our improved cash flow for the quarter complements a healthy balance sheet with more than $82 million of cash on hand and undrawn revolving credit capacity of more than $518 million at quarter end. Our net debt-to-EBITDA ratio was 2.0 at the end of July, consistent with prior year, even after funding the $298 million acquisition of Hindawi last January. We allocated $27 million to dividends and share repurchases this quarter, up from $19 million in the prior year. In June, we raised our dividend payout for the 28th consecutive year and our current dividend yield is around 2.4%. After taking a pause on share repurchases in the year-ago quarter, we acquired 130,000 shares this quarter at an average cost per share of $56.88, for a total spend of $7.4 million. Our fiscal year '22 business plan provides for important investments in our growth strategies and business optimization initiatives. In research, we will publish more to meet global demand, taking full advantages of our Hindawi acquisition to advance our leadership position in open research. We will also broaden our research publishing platform and service offerings for societies and corporations. In career-connected education, we…

Thanks, John. Let me quickly summarize key takeaways, and then we'll open it up to Q&A. Q1 was a good quarter for Wiley, with strong revenue and earnings growth, driven by good performance across all segments. The long-term favorable trends that have defined our markets continue to march forward, including the shift to open research, the migration to hybrid and online education in both university and corporate settings, and the increased adoption of digital tools and courseware for learners. Also, the ever-growing need of corporations to fill critical skill and talent gaps. Wiley's growth strategies are tightly aligned with these trends, and this is reflected in our current performance and full year outlook. Some variability remains from the pandemic as our global markets adapt to the new realities. Nonetheless, we remain confident in our expanding markets and in Wiley's outlook as we continue to meet the growing global need for research and education. As always, we remain close to our customers so we can rapidly adapt to market developments and new opportunities. We continue to make significant progress in ESG and sustainability. As an impact company, Wiley is working to unlock human potential by enabling discovery, powering education and shaping workforces. The engagement of our Wiley team is very high, and we're all energized by our mission as we work to increase the success of millions of learners and researchers worldwide. I want to thank our colleagues everywhere for their continued accomplishments, their dedication to each other and to our mission. I remain grateful to work with each and every one of them. One final note, we have targeted an Investor Day for late October, but we've now decided to push it back by 6 to 9 months. We want our Investor Day to be substantive and in person and to provide additional long-term clarity. The current COVID-affected environment is not conducive to a productive long-term discussion, but we do expect better visibility as we make our way through the fiscal year. In the meantime, we'll continue to be active in our investor outreach and provide regular updates on our continued progress in executing our growth strategies and driving improvements in sustainability. I will now open the floor to any comments and questions.

[Operator Instructions] And our first question coming from Mr. Daniel Moore of CJS Securities.

I want to start with research. As we look to calendar '22, and I realize it gets blurred as you sort of expand, read and publish in OA, but maybe update us on renewal rates and pricing trends related to the core journal subscription business? Any sense for what percentage of business is booked today and how we're looking for '22?

Sure. Absolutely. You always have a good question, Dan. Thanks a lot. So basically, as we look out through the year, our proportion of business in each of our segments has continued the pathway that they've been on. So OA is now in Q1 up to 21% of our revenue in research. It was 13% last year. And I think that's a significant shift and a shift in the right direction. Our subs revenue has moderated from 62% last year down to 55% this year. And so you're seeing a continued shift. Renewal rates remain strong. It is early in the year. So we haven't really gotten into the renewal season yet. We'll get into that next quarter. But we continue -- we expect to continue to see a continued significant growth in OA and a slow moderation in the subscriptions business. I will note that our subscription business continues to be very strong and any moderation has been minor.

Understood. Very helpful. And certainly...

Hey, Dan, this is John.

Yes, go ahead, John.

This is John. I just wanted to add, since you asked about pricing as well. I just wanted to add, as you know, traditionally, we've had relatively moderate price increases from year-to-year, and we took a pause on that in the last year given the impacts of COVID and some of the budget challenges that our university customers were facing. So we took that pause. But as we now make our way into the next season, we're expecting to resume the nominal increases that we've seen historically for those customers to our traditional subscription customers.

Got it. And it certainly sounds like it, but how is Hindawi performing relative to your expectations? And any concrete examples of that, how that's opening up growth opportunities faster for you?

Absolutely. So look, Hindawi is doing very, very well, growing strong double digits. We expect that to continue through the year. We just had our largest month of submissions and publishing ever at Hindawi. And I think in what is -- can only be described as a validation of our strategy and the reason for buying it, a material portion of Hindawi's growth -- not most of it, still just a small part of it, but a material part of it is driven by the cascade of articles that we've been talking about for so long by that cascade of articles from the total Wiley submission pool throughout the Wiley empire, but also materially into Hindawi. So all systems go. The integration has gone well, minimal disruption of any kind, and we're really honestly very pleased with how things are going. And Hindawi is really leading the way in terms of growth.

Very helpful. Maybe one more and I'll jump back in queue. But thanks for the increased transparency into your cash flow with the new adjusted EPS calculation. You started to buy back a few shares this quarter once again. The stock kind of 13x that this year's adjusted EPS guide and leverage at 2x, are you considering being more aggressive on that part of your capital allocation budget going forward?

Dan, I would say that we'll be up in terms of our share repurchases over prior year. As you'll recall, for the first half of last year, we stayed out of the market just conserving cash and observing the uncertain times that we're in, in Hindawi and then we resumed purchases in the second half of the year. We're on a pace that we're comfortable with now, and we'll continue to buy throughout the year, we'll be opportunistic when the chances arise. But we're -- I would say we're at about the pace that we expect to be over the course of the year.

And our next question is coming from Greg Pendy of Sidoti.

Just two. One, can you just help us out, you maintain the free cash flow guidance. It looks like it was pretty good. In this quarter, some of that was probably CapEx-related that has to catch up throughout the year. But are there any other puts and takes that kind of -- after a good quarter of free cash flow that kind of has you maintaining it that we should be aware of?

Greg, I would say it's early on in the year. The quarter was favorable, partly driven by strong cash earnings, which we anticipated and significantly driven by working capital timing. So some of that may unwind later in the year. So we're comfortable for sure with the guidance level that we're at. And to the extent that we need to adapt as we make our way through the year, we will. But I would say there's not a lot of evidence in the first quarter that we should change the position we've taken on the year.

Okay. Very helpful. And then just moving on, just Education Services. It seems like it might be getting a little bit more competitive there. Can you kind of elaborate? And maybe are you seeing possibly -- I know you sell services, maybe single services as well. Is that becoming more favorable? Can you just give us a little bit of color on what's going on as maybe enrollments start to normalize?

Absolutely. Well, I think the important thing is that the long-term trend that we've been talking about is continuing. The current period we're in is more of -- the performance in the current period is more a reflection of what happened last year than what's happening going forward. We do believe that -- and we're seeing tremendous interest from our clients, both for traditional rev share models and for fee-for-service models. In fact, as the financial environment has gotten challenged, the rev share model continues to add a lot of legs because essentially, we're using our financial strength to help these schools achieve the goals that they want to achieve. So again, the longer term, we believe that the enrollment trends toward online and hybrid education will continue. We think there's enormous and global opportunity that is very, very -- has a lot of green space. It's not particularly highly penetrated right now. You'll see evidence in this in our significant growth now in Ed Services coming out of Australia, where we've opened up a partnership with a major university called La Trobe, 36,000 students in order to deliver their programs online into new audiences. What we are seeing overall is a continued evolution of the space as the needs of the education market change. What we see is that demand for our traditional programs remains and there's increasing demand for nontraditional offerings that we're providing throughout our offering as well. So I wouldn't say -- I would say what's happening now is simply a natural result of a very high demand last year as everyone had to go online. And what we're seeing now is students are -- some of them are migrating to on ground a little bit. Some of them are returning to their careers and some of them are just taking a pause. But nonetheless, demand remains very strong.

[Operator Instructions] And to continue now, our next question is back from Mr. Daniel Moore of CJS Securities.

Yes. You gave great detail around professional corporate learning and great to see the rebound. Still not quite back to pre-COVID levels. Just talk about the momentum you're seeing there and what type of growth is reasonable to expect from this, if this is a new base or run rate? Or if we're still sort of in recovery mode right now?

Great question. Well, we're -- it's a very interesting time because what we saw last year, which we were very pleased with, is as the Professional and Corporate Learning businesses were adapting to COVID, we saw a -- I wouldn't call a COVID-related bounce, we certainly saw COVID-related bounce in our digital offerings, but what we saw is a change in the behavior of our corporate clients toward things that are actually incredibly aligned with our strategy. So one of them, as we talked about last year, is this migration of corporate training to being digital versus in person. And even at this point with a lot of workplaces back, we're still above 70% proportion of digital trainings, which is pretty incredible and really positive as we've discussed, that opens up a lot of opportunities for us. And so we're seeing that. And we're also seeing corporations, again, as we discussed, as I talked about in my prepared remarks, we're seeing corporations waging war for talent. And when they're waging war for talent, they got to do a bunch of things in order to find that talent. In the case of our offerings, we're actually helping build that talent. So we really like what we see there. What we've seen in the results in that segment is basically some hangover with regard to things like test prep, which are struggling to get back to normal. But overall, we think the performance in that segment is on the right track and getting back to, I should say, supportive of our longer-term strategies, and we're seeing growth in all the spaces we expect to see growth and need to see growth to empower our strategy or to realize the fruits of our strategy.

And if we see digital delivery remaining, the lion's share, is there a meaningful differential in terms of profitability versus those kind of legacy or historic in-person delivery models?

Yes. I'll ask John to comment on that in a second. But as we go forward, what happens is the digital delivery, which will allow us to tap into significantly greater audiences, because obviously, we can get to more places where there may be a training one day or two days, if it's in person, that same training is available to people 365 days a year when it's digital. And similarly, if we can only access -- if we're training new talent for companies, and we can only access them in person, there are certain physical limitations but the digital delivery allows us to access significantly larger audiences. John, do you want to comment on profitability?

I would just add, Dan, what this is really doing is it's helping to support the recovery of the revenue base and then grow it for the longer term. The fundamental product line is still, at the end of day, largely a digital product. And so it's essentially building more demand for our current product line, which is largely a digital product. I wouldn't expect it to materially change the margin performance of that business, but it certainly will help improve the volume of that business.

Makes sense. One last string I'd love to pull on, if I could. In the Education Services side, I'd love to drill down a little bit more into the profitability of each of the 2 businesses. In talent development, you're seeing really strong growth and obviously, reinvesting in that as you described. What's the glide path toward a more normal -- whether it's double-digit, low teens sort of more normal margin achievements in that business over time?

So Dan, we usually don't get down too far deep into the performance of the individual product lines, but I will -- in this case, I'll say that the MThree business is definitely in a growth phase, right, and -- the talent development business, I should say. And in this early stage, it's essentially a breakeven basis on an EBITDA level and growing. So it's dilutive to the segment overall relative to the margin rate inside of the OPM business for scale. And so we're in a very deep growth phase. It's an important part of our investment in that period -- this period and for the year. It's part of the downtick in profitability for the segment overall this year, but we fully expect that that's going to grow as we build that business globally.

And lastly, on the University Services side, with re-enrollment slowing somewhat, does it take a little bit longer to get back to those operating margins? Or is this more of just a normalization as you described for this 1, 2, 3 quarter period?

I'm expecting that we're going to get back to over the longer term and get back to the kind of rates that we've been talking about for long-term performance. So we said we expected to see EBITDA margin in that business of 17% or greater, then we'll get there. This is -- I should though note, this is a year of investment for us in that business as well as we are seeking to expand our capability to attract students at ever improving rates in terms of student acquisition costs and provide better services. So we will see lower margin in the OPM business here. We've been signaling that it's really driven by investment and some additional challenges that we've been seeing around marketing costs in the short term.

[Operator Instructions] And currently, we don't have any questions on the queue. And at this point, I'd like to hand it over back to our President and CEO, Mr. Brian Napack.

Great. Well, thanks for the great questions, and thanks, everyone, for joining today. We look forward to sharing our second quarter results in December. Thank you again.

And this concludes today's conference call. Thank you, everyone, for your participation. You may now disconnect.